Indonesia Ready to Free Itself of I.M.F.

By WAYNE ARNOLD

Published: July 30, 2003

No image has captured the troubled relationship between Indonesia and the International Monetary Fund better than a photograph taken in early 1998 of former President Suharto signing a package of austerity measures. Michel Camdessus, then the fund's managing director, stands over him, arms folded.

Mr. Camdessus later said he simply did not know where else to put his hands. But to Indonesians, his was a gesture of subjugation and the photograph was emblematic of Indonesia's capitulation.

It should come as no surprise, then, that Indonesia, having put its financial house in order, has decided to emerge at last from under the I.M.F. On Monday, the government said that it would not seek to renew its program with the I.M.F. when it expires at the end of this year.

''Yes, we'd like to graduate from the I.M.F. program,'' Dorodjatun Kuntjoro-Jakti, Indonesia's senior economic minister, said in an interview earlier this month. ''Even now, we still have sections of the government and outside who still have grudges.''

Despite that lingering resentment, Indonesia appears to have resisted calls to reject the fund's advice once it stops taking I.M.F. money. Mr. Dorodjatun announced Monday that Indonesia would accept post-program monitoring while it pays down the roughly $10 billion it will still owe the fund.

Ardent opponents of the I.M.F. had favored paying most or even all the money back immediately, to escape the need for such monitoring.

Indonesia will be the last of the three Asian nations that received bailout packages during the region's financial crisis in 1997 to emerge from the I.M.F.'s supervision, Thailand and South Korea having ended their programs long ago.

Since late 1997 when Indonesia invited the fund to help it ward off the crisis, the I.M.F. has lent the country some $14.1 billion to shore up the central bank's foreign currency reserves. Several hundred million more is due before the program ends.

Release of the loans has been tied to Indonesia's progress towards a series of goals -- austerity measures, fiscal targets, deregulation and other economic reforms. What has irked many Indonesians is that the I.M.F's initial prescriptions seemed to worsen Indonesia's problems rather than ward them off, a failure the fund has acknowledged.

Now, Indonesia no longer needs the fund's money. The rupiah is one of Asia's strongest currencies this year. In addition, Indonesia has built up enough foreign currency reserves to pay back the I.M.F. the approximately $10 billion it will owe, and it will have enough left over to handle three months of imports, a safety net that economists generally recommend.

But that does not mean that Indonesia does not still need the I.M.F. Economic officials have grown accustomed to using the fund as a scapegoat for pushing through unpopular reforms, and relations with the fund became a litmus test of Indonesia's progress.

''It provides some leverage to those in the Indonesian government that would like to do the right thing in the financial sense,'' said Steven Hess, an analyst at Moody's Investors Service in New York.

But with national elections due in 2004, a new program with the I.M.F. became politically untenable, analysts said. ''The government doesn't want to be seen as being dictated to by the I.M.F.,'' Mr. Hess said.

Forsaking I.M.F. financing also deprives Indonesia of the chance to restructure debts to the so-called Paris Club of international creditors, which includes the United States and Japan. That means Indonesia will most likely have to turn to international financial markets to raise money to finance its budget deficit, economists say.

In place of the letters of intent that spelled out the changes Indonesia promised to set in motion in return for I.M.F. funds, the government is considering drafting its own letters of intent, with President Megawati Sukarnoputri issuing reform directives of her own, Mr. Dorodjatun said.

Photo: In 1998, Michel Camdessus, then the managing director of the International Monetary Fund, watched President Suharto of Indonesia sign a new agreement with the fund that included a set of austerity measures. (Photo by Associated Press)